How the Intense Competition Among Its Telco Players Makes Korea the Leading Nation for Mobile

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April 2014

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Last Thursday, LG U Plus, one of Korea’s top 3 telecommunication companies introduced an unlimited LTE data plan, which also includes unlimited phone calls and SMS. While the company’s vice president was giving a speech on the new service, SK Telecom, a leading telco player in Korea also press-released their new unlimited LTE data plan. Before LG U Plus’ announcement SK Telecom, had not shown any interest for offering the service.

The war among top 3 telco players – SK Telecom, KT, and LG U+- in Korea is getting ever fiercer. The flare of war this year was fired last 23rd January, when the competition for sales subsidies of Samsung Galaxy Note 3 and iPhone 5S got heated up to the point where phone prices fell from 580USD to 0USD within a day. The principal for the mobile phone effectively became zero.

This incident, now known as ‘The Crisis of 1.23’, provoked Korea Communication Commission to suspend the three major telco companies for 45 days starting from March. The suspension period was set so that only two telco companies can have business while the other’s hands are tied and their customers change their data plans. This penalization declared another intense war among telco players, who had to increase or at least secure their market share before the suspension period started.

Right after the disciplinary measure was announced, the number of people who switched their network operators skyrocketed to over 32K per day, which was way over the Korean government’s criteria for a market meltdown (24K per day). It meant that telco companies spent a tremendous amount on the subsidy. SK Telecom even gave customers who purchased Samsung Galaxy S4s an extra 100USD with no principal, making it not just a ‘free phone’ but a ‘minus phone’. Moreover, during the business suspension period for KT and LGU+, SK telecom released Samsung’s new Galaxy S5, before its official global launch data without asking for a consent from Samsung electronics.

The competition among telco players in Korea is an old story. However, as the growth rates for smartphone users and LTE subscriptions slow down, the fight for increasing revenues is no longer about drawing new customers but stealing customers from competitors. Some experts in the industry even say that to increase 1% market share in Korea, a telco company should spend close to one billion USD.

The side effects of intense competition among telco companies were not limited to over-the-top subsidies. It also helped telco companies come up with innovative services and seemingly out-of-this-world deals like unlimited LTE plans for quite an affordable price (70-80 USD per month) possible.

The rise of unlimited LTE plans will have sub-effects of its own. For telco players, offering unlimited LTE service means that the limit for charging for their core services is already set for the foreseeable future. For the content producers, it is a whole new chapter. Before, users were tied to the monthly plan which provided 5-7GB of data so that playing movies or heavy MMORPG games using LTE was almost impossible. However, the unlimited LTE service allows for more advanced and data-heavy content development. As the usage of heavy content becomes more frequent, mobile manufacturers are going to have to invest even more in the battery life and processor speeds of smartphones.

Now that unlimited LTE is out, I wonder what could be the next battlefield for Korean telco companies. No matter what it is, it can only benefit consumers and drive further advancement of the country’s IT and contents industry.

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